PICO Holdings Inc (PICO:Nasdaq).
PICO Holdings Inc was incorporated in 1981 and is based in La Jolla, California.
PICO Holdings, Inc. and its subsidiaries operate as a diversified holding company. It operates through three segments:
Water Resource and Water Storage.
The Water Resource and Water Storage segment supplies water to end-users, including water utilities, municipalities, developers, or industrial users. This segment also engages in the development of storage and distribution infrastructure of water for resale.
The Real Estate segment owns, develops, and sells land, as well as related mineral rights and water rights in Nevada.
The HyperFeed segment provides enterprise-wide ticker plant and transaction technology software and services that enable financial institutions to process and use exchange data with Smart Order Routing and other applications.
Many prominent individual investors are coming to the realization that water is too cheap. We believe that water rights are a great buy today. As an individual investor, you can’t trade water rights very easily. But you can invest in a company that does.
The once-plentiful sources of water in the American West aren’t as plentiful as they used to be. That is why water rights are becoming a hot commodity. We believe that the value of water rights in the American West will continue to soar, which is why we are attracted to PICO Holdings Inc.
The company owns 134,130 acre feet of water rights in Nevada and Arizona, plus a small amount in Colorado. The company is also seeking approval for an additional 42,800 acre feet of water in its Nevada lands. The company is constantly looking to acquire new water rights. It does this by legally establishing water rights in property it already owns, or by purchasing outright already established legal water rights.
Nevada and Arizona are the two states that have among the highest population growth rates in the U.S.A and, subsequently, also have among the highest new home construction rates. Both these factors are incredibly bullish for the value of water rights. To put the value of water rights into some sort of context, we can look at a couple of recent transactions:
In Nevada, Vidler and Lincoln County made a sale for 2,100 acre feet of water for a price of $7,500 per acre in October 2005.
In Coyote Springs, also in Nevada, water rights sold for $6,050. In Arizona, Harquahala Valley water rights sold for $2,200 per acre foot.
Over the next few years, we wouldn’'t be surprised to see water rights climb to $10,000 per acre foot in the arid states of Nevada, Arizona, and New Mexico.
Lets look at how this all relates to PICO’s current value. Assuming a value of $3,500 per acre foot for its water rights, times 134,130 acre feet, you get about $469 million, which is greater than PICO's current enterprise value. But this figure does not include the 42,800 acre feet in Nevada that PICO expects to obtain. PICO also owns a storage facility capable of storing up to 1 million acre feet of water.
Currently, the company is buying water and storing it. The company has stored the equivalent of about 90,000 acre feet of water. We haven’t taken account of any of this, which could bolster the valuation even further. PICO also has an investment portfolio,land and other interests. So, there is a nice margin of safety in this stock. Based only on PICO’s existing water rights of 134,130 (and ignoring any rights that it expects to obtain), every $119 per acre/foot increase in the value of its holdings would add $1 per share to the value of PICO stock. At $10,000 per acre foot, for example, PICO’s existing water rights would be worth $84 a share!
Buy PICO Holdings Inc (PICO:Nasdaq), up to $45 and wait for the flood gates to open!